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Making mergers, divestitures work for CIOs

Ali Bandukwalla, Pavel Krumkachev, Shalva Nolen and Rajat Sharma | June 13, 2008
Even the most seasoned IT executives worry about an integration's budgetary impact and recognize the advantages of quick completion.

FRAMINGHAM, 6 JUNE 2008 - The Problem: Managing Uncertainties and Expectations

The complexities of mergers, acquisitions and divestitures (MAD) can be chaotic for IT organizations. Knowing that IT's performance can impact the results of a deal, today's CIOs prioritize IT integrations or divestitures. Even the most seasoned IT executives worry about an integration's budgetary impact and recognize the advantages of quick completion. Common questions include:

-- How can IT leaders be better prepared to handle the uncertainty associated with managing business expectations and ever-changing IT priorities?
-- How can CIOs contribute beyond IT leadership to truly support business strategy?

MAD IT projects can sometimes adversely impact a deal because of the following:

-- Misalignment between IT and business strategy.
-- Lack of organization-readiness efforts prior to an M&A deal.
-- The complex nature of integrations and divestitures.

Beyond the obvious subject of synergies, it's important to identify how CIOs can use MAD activities as a platform to demonstrate IT's business value. Based on interviews with several IT executives, we examined critical decisions and common causes of failed MAD IT projects. The interviews helped us better understand the challenges of integrating or divesting various IT functions. The real-life lessons learned can benefit other CIOs preparing agile IT organizations and their companies for future deals.

Scenario: A Highly Customized Merger of Equals

To accelerate growth, establish greater market penetration and improve the customer experience, two companies merged. The IT team began planning for the integration, which included the activities necessary to support both "day one" integration--operations on the day the merger was legally completed--and the eventual goal of integrating all people, processes and technology, namely:

-- Readying infrastructure, such as e-mail, domain, and active directory, and integrating HR, payroll, and benefits policies and systems;
-- Upgrading the acquirer's existing ERP suite to enable a common ERP platform;
-- Merging all systems, processes, policies and procedures across organizations.

Challenges: Experience--and Time--Are at a Premium

In addition to the typical implementation challenges described above, this project faced the following issues:

-- Lack of integration experience. Most IT employees had production support experience; none had performed an integration of this size.
-- Lack of experience in infrastructure and application consolidation. One organization lost several key employees after the merger. Complicating matters, geographical separation of the two organizations meant that application and infrastructure knowledge resided in two locations, making collaboration and information exchange difficult.
-- Limited system access prior to day one. Legal and compliance issues prevented direct access to one of the company's IT systems, so information exchange prior to the deal closing had to be conducted in an isolated, "clean room" environment.
-- Poor data quality. Business-critical contract manufacturing required uninterrupted service and complex customized applications for procurement processes. One company's system data had quality issues due to back-end updates, poor governance processes and unpurged, obsolete data.
-- Aggressive implementation time line. If the team missed any deadlines, the integration go-live window would be delayed by at least three months to allow for the quarter- and year-end financial closing process. Consequently, even a small delay in system integration could jeopardize projected merger synergies.


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